Supermarket and supplier relations at a "crossroads" warns Pernod Ricard UK chief

By Gemma McKenna

Published: 24 November, 2014

Relationships between major supermakets and their suppliers are now at a "crossroads" according to Denis O'Flynn, managing director of Pernod Ricard UK, and we should expect tighter regulations to bring more control over the sector.

Denis O'Flynn Denis O'Flynn, managing director of Pernod Ricard UK, believes there is change aheadO'FLynn believes, in the light of the Tesco accounting scandal, there's an opportunity for suppliers and retailers alike to admit 'there's a more sensible way of going about this'.

He was speaking to Harpers.co.uk in light of the recent TescoGate crisis which has put how supermarkets deal with their suppliers under both the political and media microscope.

O'Flynn said how some of the "retailers have behaved has put a spotlight on them" and could result in a strengthening of the Groceries Supply Code. He can't see the industry "coming out of this phase without some quasi-regulation a la GSCOP. There will be something out of that".

"It's an opportunity for everyone to say, 'there's a more sensible way of going about this'. There's something in the air."

O'Flynn said, "in essence, all retailers do is rent space - we're both looking to attract a purchase from the consumer". With that in mind, the pull/push model traditionally used in the retail sector had to come "back into more balance".

Changes are also coming down the track given the growth in online, and the move away from the traditional high-to-low discounting model, he added.

Other senior trade figures are less convinced the problems facing Tesco will result in any changes to retailer and supplier relations.

Speaking at last week's Wine Vision event, Simon McMurtrie, group chief executive at Direct Wines, agreed that "the dynamic between suppliers and retailers has changed" but that natural competition will always drive the agenda. "There may be a slight rebalancing after this, but producers always want to get product sold in one way or another. There may be some subtle rebalancing but no dramatic reshaping of the wine industry," he argued.

Adrian Bridge, chief executive of the Fladgate Partnership, added: "I don't see anything changing."

Ian Harris, chief executive of the Wine and Spirit Education Trust, said: "Tesco got caught. This is not unique to Tesco or the wine world. What's happened at Tesco is not new."

Leading economist and author of the Wine Economist blog, Mike Veseth, told Harpers.co.uk: "It often takes a crisis for a generic institution to change - this may be that crisis," said Veseth. "It's not just TescoGate - that draws the attention and creates an opening - it's the entire wine industry in Great Britain."

"I wasn't aware that the British wine economy was in such a bad state," said Veseth, speaking to Harpers.co.uk at last week's Wine Vision. He said there was currently a "race to the bottom" as retailers pushed down suppliers' prices.

"You've got to do something to break the dynamic," he stated.

He explained that although most markets are now open - in that there are not so many monopolies - in their place 'monopsonies' have sprung up. He defined monopsony as the shift in power to a major retailer, such as Amazon or Tesco, where suppliers are afraid to act in any way that may jeopardise their deals. He questioned whether we have now reached a "tipping point".

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